200,000 Homes a Year? Don’t Believe the Hype

Political speeches from leaders these days rarely make for anything more than some catchy headlines in the press and a general idea of party direction at best, whichever political persuasion you happen to be. The key issue that came out of Ed Miliband’s wonderful/terrible* speech was housing. (*delete depending on your political persuasion).

“We’ll identify new towns and garden cities and we’ll have a clear aim that by the end of the parliament Britain will be building 200,000 homes a year.”

Private and public housing starts in 2012 were only 99,820 in England, never mind Great Britain, so 200,000 is nice sentiment. If it were to happen it would be great. But if you look over the last ten years you’d notice politicians from all the major parties have made grand announcements on house building that have turned out to be untrue. For instance: ‘200,000 homes per year by 2016’? That was Gordon Brown in 2007. Then we went through a whole raft of policies from the coalition that were going to deliver 100,000 homes each such as Buy Now Pay Later and NewBuy,

The focus on ‘new towns and garden cities’ is curious given that this is what Nick Clegg was saying last year when he said, ‘We are working with a number of large locally-led schemes, ranging from 4,000 to 9,500 units in size, which in total will deliver up to 48,600 new homes’. But nothing has been heard since.

More important than the random number generators that all the main parties appear to use for future housing was Ed Miliband’s refocusing of the debate on what can be done to boost supply as opposed to demand and prices.

It is clear to everyone that there is a chronic lack of supply in the housing market, especially in key areas of demand such as London and the South East, which have sustained house prices. It is strange that all the key policies to boost the housing market over the past few years have focused on enabling greater demand, whether it be FirstBuy, NewBuy, Funding for Lending or Help to Buy. But, politicians cannot afford to allow prices to fall given most households’ wealth is in their house.

What Ed Miliband has done is likely to change the debate, focusing on supply rather than demand:

“So we’ll say to private developers, you can’t just sit on land and refuse to build. We will give them a very clear message - either use the land or lose the land, that is what the next Labour government will do.”

But, what exactly are they intending to do? Take land with planning permission away from house builders? That essentially decapitates the major house builders and destroys their business model, given that their profits are primarily driven by land value. Is that really the way forward? Is that really going to give us the number, and type, of homes we need?

Surely if the essential principle is to wrestle control of the housing market away from the major house builders and ensure that, long term, their business model is based upon building homes then history suggests the best way of doing this is for a public sector building programme. The largest number of homes we’ve ever built, and the only time we’ve built more than the number of households we’ve been creating, was in the late ‘60s and early ‘70s, when 350,000-400,000 homes per year were built; around half public and half private.

Additionally, if government is a significant player in the house building market it can directly influence the type of housing being built in terms of flats vs houses, energy-efficiency, space. Also, indirectly, this could influence private house building by providing competition for what is already being built.

So, to summarise, the 200,000 figure is largely irrelevant, the change in focus of policy from demand to supply is good but the method of driving the policy is bad. I wouldn’t expect what happened in the few years after Gordon Brown’s ‘200,000 homes per year’ statement, but also I wouldn’t expect 200,000 homes.